Leasing Toll Roads is the Wrong Fix for State Money Woes

I have a black-and-white photo, taken in 1956, of a truck making its way through the toll plaza on the Kansas Turnpike. The truck, emblazoned with the Graves Trucking logo, belonged to my father's trucking company.

In those days a toll road was one of very few options available for states wishing to build a freeway system. Interestingly enough, some 50 years later, toll roads are again surging in popularity. Now however, because of the rise in popularity of asset monetization schemes that provide up-front cash payments, governments have begun to view the leasing of existing toll roads as a quick fix for financial woes.

Just three years ago the privatization or leasing of existing highway infrastructure was a little-understood concept that few were even talking about. Today, the momentum behind these get-rich quick schemes is considerable. What began as a niche financing scheme for the construction of new highway capacity is fast-becoming the financing mechanism of choice, and the public interest is unfortunately being sacrificed in favor of the almighty dollar.

For example, in January 2005, the City of Chicago leased the Chicago Skyway (I-90) to a joint venture between the Australian Macquarie Infrastructure Group and Spanish Cintra for $1.83 billion to pay off city debt and fund non-transportation projects. In June of 2006, Indiana leased the Indiana Toll Road (I-80/90) to Macquarie-Cintra for a one-time payment of $3.85 billion.

Accordingly, there has been a lot of talk recently among state lawmakers in Tallahassee about how best to fund the expansion of Florida's infrastructure to keep pace with the state's rising population. With budget shortfalls and a general unwillingness to levy tax increases, it's not surprising that Florida's politicians are considering asset monetization for the highway equivalent of a payday loan.

However, before rushing into the privatization and/or leasing of Florida's existing roadways, a thorough review must be done to ensure there is a clear understanding of the long-term implications. Does it really make sense to surrender control of an existing roadway for two, three, or even four generations in exchange for an up-front cash payment that is likely to be gone in ten years? That hardly sounds like a fair exchange to me.

Before proceeding, lawmakers must give serious consideration to the impact on toll rates when an existing roadway is leased and be sure their actions today are motivated solely by the long-term public good. In a privatization deal, the investor is usually allowed annual increases of a minimum 2 percent to a maximum of the average rate of change in GDP per capita (the accepted standard). Based on historical figures, annual increases could hit 6.2 percent and privatized highways can become "Lexus highways," unaffordable for those on limited incomes.

Moreover, this past week the Florida legislature introduced a proposal to lease Alligator Alley to the state-administered Lawton Chiles Endowment Fund. While this would keep the road out of the hands of private entities, it is nonetheless troubling when you consider the Chiles Fund historically generates annual returns between 7 percent and 12 percent while the toll road generates almost no excess revenue after accounting for expenses, debt service and the wetlands remediation fund obligation. Therefore, in order to generate acceptable returns that meet the annual returns of the Chiles Fund, toll rates on Alligator Alley would have to be increased substantially.

Should Alligator Alley (or any existing toll road in Florida) be leased to a private entity or state endowment fund, the much higher tolls are likely to force travelers to venture greater distances to avoid paying the toll. In the case of Alligator Alley, which has no nearby parallel roadway, drivers will be forced to pay the much higher toll rate or drive a long distance to use an alternative route. Considering the current price of fuel, a driver is essentially now stuck facing a lose/lose situation.

There is also the issue of fairness in taxation or the so called "user-fee principle." Toll advocates argue that tolls are a user fee necessary to finance the maintenance or expansion of a specific road. However, requiring drivers to pay a toll to fund projects in a completely different section of the state, and from which the toll payer derives little or no benefit, is unfair. Yet that is exactly what happens in a lease or privatization scheme as the up-front cash payment for control of the road is diverted to projects elsewhere while the increased toll revenues go to line the pockets of investors.

This is not to say that public-private partnerships have no place in helping to solve the problem of how to fund Florida's or our nation's infrastructure needs. Private financing can play a role. But it should be a limited role.

We are a society spoiled by instant gratification and access. Having served two terms as Governor of Kansas, I understand, all too well, the pressures our leaders face to find immediate solutions to complex problems. But I also know constituencies expect their leaders to have the political will to do what's right rather than what's easy.

I challenge Florida's leaders to find that will on this issue. We must take the time to consider the long-term effects leasing Florida's existing roads will have on the state's transportation system, citizens, and businesses. As seriously as consideration is given to the financial gains of a lease, the same consideration must also be given to the potential for losing the benefits of an asset that has served Florida wellâ¦and will continue to do so providing the state's lawmakers resist the temptations of a quick fix.

Bill Graves, a former governor of Kansas, is President and CEO of the American Trucking Association in Arlington, Va.